Truck production capacity may be tapped out

While orders for heavy trucks remain strong, despite uneven freight volumes and slowdown in the U.S. economy, the manufacturing capacity to build them may have reached a ceiling of sorts – particularly due to the limitations of second and third tier suppliers.

“There’s been a shortage of axles and tires for quite some time, but there’s also a growing dearth of other sub assemblies as well,” Steve Tam, vp-commercial vehicle sector for ACT Research Co., told Fleet Owner.

“There’s a modicum of conservativeness as well among the major OEMs in the truck manufacturing space, but the production limitations really revolve around the limitations of those suppliers,” he added.

Ron Huibers, Volvo Trucks North America’s senior vp-sales and marketing, noted in an interview back in May that, “the order rate is so high now that we’ll reach a natural ceiling soon in terms of how many trucks we can physically produce this year.”

Even though North American Class 8 net orders fell to 23,300 in May, a nearly 40% decline from April, Kenny Vieth, ACT’s president & senior analyst, noted orders remained 77% above the order rate of May 2010. Indeed, ACT’s current data indicates Class 8 orders are entering their ninth month of what the firm calls “strong order intake activity.”

Sam Kahan, ACT’s chief economist, added that despite a growing bevy of near-term concerns – especially a slowdown in freight shipments – demand for commercial vehicles continues to be solid across all segments of the market.

“While the economy continues at a rather slow pace, Class 8 truck demand continues to be strong, driven by longer-term demand factors rather than the short-term gyrations of the economy,” he noted. “But the ability to build still appears to be the overarching factor impacting Class 8 [production] volumes this year.”

And those “build limitations” are primarily why Class 8 orders should level off for the remainder of the year, Tam added.

“It’s really about the struggle of second and third tier suppliers—the companies making fasteners and components within larger assemblies such as transmissions, for example – to keep up with demand,” he explained. “They are typically smaller companies that are not on the ‘radar screen’ of banks, so they find it far tougher to get access to capital because they don’t have ‘household name’ recognition like bigger suppliers like the engine and transmission companies.”